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An Experimental Study of Bubble Formation in Asset Markets Using the Tâtonnement Trading Institution

Volodymyr Lugovskyy (), Daniela Puzzello () and Steven Tucker ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: We report the results of an experiment designed to study the role of institutional structure in the formation of bubbles and crashes in laboratory asset markets. In a setting employing double auctions and call markets as trading institutions, bubbles and crashes are a quite robust phenomenon. The only factor appearing to reduce bubbles is experience across markets. In this study, we employ the tâtonnement trading institution, which has not been previously explored in laboratory asset markets, despite its historical and contemporary relevance. The results show that bubbles are significantly reduced, suggesting that the trading institution plays a crucial role in the formation of bubbles.

Keywords: Experimental Asset Markets; Price Bubbles; Trading Institutions; Tâtonnement (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2011-01-01
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